(6) Income Taxes

Income before income taxes related to foreign operations was $5.5 million, $9.3 million and $12.7 million in fiscal 2010, 2011 and 2012, respectively. The expense (benefit) for income taxes consisted of the following (in thousands):


	Fiscal Years Ended January 31,
	2010			2011			2012
Current:
Federal	$	6,472		$	10,102		$	12,488
State		1,262			923			1,777
Foreign		(274	)		1,881			2,776

		7,460			12,906			17,041

Deferred:
Federal		(21,229	)		(21,348	)		(14,916	)
State		(4,299	)		(3,890	)		(1,583	)
Foreign		(637	)		(105	)		376

		(26,165	)		(25,343	)		(16,123	)

Total income tax (benefit) expense	$	(18,705	)	$	(12,437	)	$	918

The Company's effective tax rate differs from the statutory federal income tax rate of 35% for fiscal 2010, 2011 and 2012 primarily due to the following (in thousands):


	Fiscal Years Ended January 31,
	2010			2011			2012
Tax (benefit) expense at federal statutory rate	$	(11,105	)	$	(7,698	)	$	3,452
Research and experimentation credit		(479	)		(571	)		(316	)
State tax, net of federal effect		(1,861	)		(1,550	)		(251	)
Foreign rate differential		(2,288	)		706			(1,400	)
Change in reserves for uncertain tax positions		(2,496	)		(2,493	)		259
Impairment of goodwill and other intangibles		—			502			—
Domestic Manufacturing Deduction		(588	)		(1,083	)		(1,267	)
Other		112			(250	)		441

Total income tax benefit	$	(18,705	)	$	(12,437	)	$	918

The cumulative amount of unremitted foreign earnings that are considered to be permanently invested outside the United States and on which no U.S. taxes have been provided were approximately $26.1 million, $32.8 million and $39.5 million in fiscal 2010, 2011 and 2012, respectively. If the Company was to remit these earnings, foreign tax credits may become available under current law to reduce the resulting U.S. income tax liability. However, determination of the U.S. income tax liability if such amounts were remitted is not practicable.

The Company's net deferred tax assets (liabilities) are summarized as follows (in thousands):


	As of January 31,
	2011			2012
Deferred tax assets:
Allowance for doubtful accounts	$	300		$	290
Accrued expenses		1,249			1,282
Deferred revenue		2,537			3,333
State taxes		1,252			675
Long-lived assets acquired in a business combination, net		189			1,041
NOL and tax credits carryforward		6,869			5,893
Other		3,366			4,000

Gross deferred tax assets		15,762			16,514
Valuation allowance		(339	)		(846	)

Net deferred tax assets		15,423			15,668

Deferred tax liabilities:
Long-lived assets acquired in a business combination, net		(44,278	)		(27,758	)
Property and equipment, net		(18	)		(176	)
Other		(3,385	)		(3,554	)

Total deferred tax liabilities		(47,681	)		(31,488	)

Net deferred tax liabilities	$	(32,258	)	$	(15,820	)

The Company recorded a valuation allowance of $0.3 million and $0.8 million at January 31, 2011 and January 31, 2012, respectively. The valuation allowance decreased $0.7 million for the year ended January 31, 2010. The valuation allowance increased $0.2 million and $0.5 million for the years ended January 31, 2011 and 2012, respectively.

Because the Company has future reversing taxable temporary differences sufficient to recover most deductible temporary differences, a valuation allowance has only been necessary for certain net operating loss carryforwards whose realizability is limited by change of ownership rules. At January 31, 2012, the Company had U.S. federal and state net operating loss carryforwards of approximately $11.2 million and $3.1 million, respectively. The U.S. federal and state losses will begin expiring in 2020 and 2014, respectively, if not utilized. The Company's net operating losses are limited by the annual limitations described in Section 382 of the Internal Revenue Code. At January 31, 2012, the Company had no U.S. federal tax credit carryforwards and it had state tax credit carryforwards of approximately $1.6 million. The state research and development credit carryforwards will carryforward indefinitely.

The Company had total federal, state and foreign unrecognized tax benefits of $3.8 million and $4.6 million, including interest of $0.9 million and $1.0 million at January 31, 2011 and January 31, 2012, respectively. Of the total unrecognized tax benefits, $2.9 million and $3.6 million as of January 31, 2011 and 2012, respectively, if recognized, would reduce the Company's effective tax rate in the period of recognition.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands):


	Total Gross Unrecognized Tax Benefits, Excluding Interest
	Fiscal 2011			Fiscal 2012
Balance at beginning of year	$	6,035		$	2,883
Increases related to current year tax positions		145			107
Increases related to prior year tax positions		16			631
Decreases related to prior year tax positions		(1,289	)		(31	)
Decreases related to lapsing of statute of limitations		—			—
Decreases related to settlements with taxing authorities		(2,024	)		—

Balance at end of year	$	2,883		$	3,590

The Company files tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The statute of limitations on our federal and major state tax return filings remains open for the years ended January 31, 2006 through January 31, 2011. The statute of limitations on U.K. income tax filings remains open for the years ended January 31, 1999 through January 31, 2011. The Company does not believe that it is reasonably possible that our unrecognized tax benefits will materially change in the next twelve months.